China’s December home price growth moderates, bubble fears abate

Growth in China’s home prices moderated slightly in December as local governments stepped up curbs to tame speculation which some fear is fuelling a property bubble.

The price moderation will come as something of a relief to China’s leaders as they wrestle with economic targets for 2017.

Sources have told Reuters Beijing is prepared to accept a more modest growth target of 6.5 percent this year as leaders tackle a mountain of debt built up over years of heavy official borrowing to fund stimulus campaigns.

But after 2016’s record surge in China’s nationwide home prices, the biggest since 2011 when the data was first available, further sharp gains may require more aggressive policy curbs, adding to risks of a price crash and a sharp knock on the economy.

Average new home prices in 70 major cities rose 12.4 percent in December from a year earlier, compared to November’s record 12.6 percent rise, data from the National Bureau of Statistics(NBS) showed on Wednesday.

On a monthly basis, new home prices rose 0.3 percent, slowing from November’s 0.6 percent, according to Reuters calculations.

Authorities have unleashed a series of measures in recent months to contain rapid house price rises in more than two dozen Chinese cities, amid fears that markets are overheating.

China’s leaders have pledged to strictly limit credit flowing into speculative buying in the housing market in 2017.

Those sentiments have been echoed by some local government heads, although local authorities are not always seen as eager to follow Beijing’s property clampdowns due to the hefty revenues they garner from land sales.

Market watchers say prices are likely to continue rising in the biggest cities due to strong demand and limited land for new housing projects.

Inventories in some of China’s biggest cities shrunk to less than six months of demand in January, data from private research agency China Index Academy showed, leaving many analysts still bullish on the housing market overall.

China’s average home prices are forecast to rise 4.1 percent in 2017, while growth in property investment would rise 5.4 percent, a state-owned newspaper reported earlier this month, citing the Chinese Academy of Social Sciences.

But authorities will be walking a tightrope between curbing excessive price gains and clamping down too hard on a sector which accounts for about 15 percent of the economy.

The National Academy of Economic Strategy, part of the Chinese Academy of Social Sciences (CASS), has warned that an “overcorrecting” property market would drag on economic growth and impair financial stability, saying first-tier and some second-tier cities would be most exposed to such risks.

Wednesday’s data showed eye-popping price rises in 2016 despite a slowdown in growth late in the year.

China depended heavily on the surging real estate market and government stimulus to drive economic expansion in 2016, and not surprisingly is widely expected to report on Friday that it met its annual growth target of 6.5 to 7 percent.

While property curbs are expected to weigh on economic growth this year, the government is likely to welcome signs of moderation in home prices, which would allow it to focus on defusing explosive growth in corporate debt.

But speculation is still rife in some parts of the country as buyers are priced out of the top cities and look to invest elsewhere.

In the major southwestern city of Chongqing, the local government recently imposed a property tax on first-time home buyers who are non-residents, while some smaller cities are still suffering from a large overhang of unsold homes that has hardly improved from a year ago.

Official data showed Chongqing prices rose 1.1 percent in December compared to a month ago, making it one of the top performers in terms of monthly growth in the month.

China’s commercial housing inventory totalled 691 million square metres in November 2016, a mere 0.01 percent drop from the same time a year earlier, as developers rushed to bring on new projects as home sales and prices soared, official data from the Statistic Bureau showed. -Reuters